Gold (XAU/USD) traded with a bearish bias on Thursday, struggling to recover from the previous day’s rebound from seven-week lows as markets digest recent news reports regarding the US-Iran war. At the time of writing, XAU/USD is trading around $4,507, down almost 0.80% on the day.
In the latest developments, Reuters reported earlier on Thursday, citing two senior Iranian sources, that Iran’s Supreme Leader has ordered that military-grade uranium remain in the country. The report dampened hopes for a short-term breakthrough in negotiations, as curbing Iran’s nuclear program remains one of Washington’s main demands and could complicate ongoing efforts to end the war in the Middle East.
Earlier, Iran’s Tasnim News Agency reported that Tehran was reviewing a recent draft proposal sent by the United States (US) in response to its 14-point proposal. The update came after U.S. President Donald Trump said on Wednesday that negotiations with Iran were in their “final stages,” but warned that military operations could resume if no agreement is reached.
Continued uncertainty around the conflict is supporting safe-haven demand for the US dollar (USD), with the US dollar index (DXY), which tracks the value of the dollar against a basket of six major currencies, hovering near over a month highs above 99.00.
At the same time, elevated oil prices are fueling concerns about inflation and strengthening expectations that the Federal Reserve (Fed) may raise interest rates by the end of the year.
Minutes from the Fed’s April meeting showed that participants “generally assessed that persistently elevated inflation and uncertainty in the Middle East may require maintaining the current policy stance longer than anticipated.” The minutes also noted that “most participants concluded that some tightening of policy would probably be appropriate if inflation were to continue to remain above 2%.”
The hawkish sell-off continues to support U.S. Treasury yields, with the benchmark 10-year Treasury yield remaining near multi-month highs. Elevated yields and a stronger US dollar remain the main dragging factors for non-yielding assets such as gold, limiting the stronger upside momentum in the XAU/USD pair.
Looking ahead, investors will continue to monitor headlines regarding developments in the Middle East. In terms of data, the number of recent unemployed in the US amounted to 209,000, below market expectations of 210,000. and lower than the previous reading of 212,000. Investors are now waiting for preliminary S&P Global Purchasing Managers Index (PMI) data for May, which will be released on Thursday.
Technical Analysis: XAU/USD Holds Below 50-Day and 100-Day SMAs
On the daily chart, the XAU/USD pair is holding below the descending 50-day and 100-day plain moving average (SMA), which maintains a short-term bearish bias even as the price remains above the rising 200-day SMA near $4,370.
The relative strength index (RSI) of 40.51 remains below the midline, suggesting continued downward pressure, while the average directional index (ADX) of around 20 indicates a delicate directional trend as the market consolidates in a broader correction phase.
On the other hand, initial resistance lies at the 50-day SMA at $4,677, with a stronger limit at the 100-day SMA near $4,796 if bulls attempt a deeper bounce.
On the other hand, the rising 200-day SMA at $4,370 provides key support to watch. A decisive break below this long-term baseline would strengthen the bearish bias and open the door to a more pronounced correction.
(The technical analysis for this story was written with the facilitate of an AI tool.)
Gold FAQs
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, beyond its luster and utilize in jewelry, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies in turbulent times, central banks typically diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves may provide a source of confidence in the country’s solvency. According to data from the World Gold Council, central banks added 1,136 tons of gold to their reserves in 2022, worth about $70 billion. This is the highest annual purchase since registration began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US treasury bonds, which are both major reserve assets and safe and sound haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their holdings in turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets support the precious metal.
The price may vary due to many factors. Geopolitical instability or fear of a deep recession can quickly cause gold prices to rise due to its safe-haven status. Gold, as a non-yielding asset, tends to rise at lower interest rates, while the higher cost of money tends to weigh on the yellow metal. Still, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A robust dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
